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Long-Distance Carriers

If long-distance is the buggy-whip industry of the 21st century, why do the four regional Bell operating companies want to get into it? Because long-distance is a nice marketing tool if you can package it with other services.

Thats exactly what Sprint is doing and what AT&T claims it will do after splitting the company into three operating units and four stocks over the next two years. And WorldCom is quarantining its MCI long- distance business with a tracking stock this month.

As a stand-alone business, long-distance is about as attractive as a ball and chain; amid steadily increasing competition and the advent of Internet telephony, rates are falling steadily toward zero. But if youre a regional Bell operating company banned by federal regulations from selling the service, long-distance is a vital marketing tool.

While the Bells can only sell long-distance in five states, others are expected to join the list under a more lenient Federal Communications Commission Chairman Michael Powell. The Bells pitch their entry into the market as a boon for consumers. For example, when Verizon Communications won approval to sell long- distance in New York, rates fell 30 percent. In Texas, rates fell 43 percent after SBC Communications gained entry, according to the U.S. Telecom Association.

Further reading

While long-distance improves the attractiveness of cable telephone service in AT&Ts territory, the company struggles to put together competitive packages by reselling the Bells service. Thats why Chairman C. Michael Armstrong threatened to pull out of local markets in New York and Texas, citing the Bells high rates.

Sprint and WorldCom have also retreated from local markets, though they still see demand for innovative services such as fixed wireless broadband in selected cities.